The situation where more reduction of risk could be achieved by spreading the investment across two stocks is- There is no correlation. There is perfect negative correlation There is modest negative correlation The two stocks are perfectly correlated
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- If the returns from two assets have a correlation of 0: Select one: A. Their returns are perfectly opposed (when one increases the other decreases) B. There is no discernible relationship between the returns of the two assets C. The portfolio consisting of the two assets will be less risky than any of the two assets held individually D. Their returns move in unisonWhich of the following statements is false? A. The lower the correlation coefficient, the greater the potential benefits from diversification. B. To make the covariance of two random variables easier to interpret, it may be divided by the product of the random variables’ standard deviation. The resulting value is called the correlation coefficient, or simply, correlation. C. The risk that remains cannot be diversified away and is called the systematic risk. D. In the event of bankruptcy, preferred stock ranks below common stock but above debt.Which of the following statements regarding beta is false: a. Beta is a measure of systematic risk. b. The beta of a share is calculated as the covariance between the share and the market divided by the variance of the market. c. If the returns of two firms are negatively correlated, then one of them must have a negative beta. d. A share with a beta equal to -1 has zero systematic risk. e. A share’s beta is more relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one share.
- Which of the following is INCORRECT? A. Anticipated returns on any given stock are always greater than 0. B. A negative beta stock has an expected return less than the risk-free rate. C. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). D. All a stock’s risk could be unsystematic.1.) Which is false concerning standard deviation? a. The smaller the standard deviation is the less volatile the investment. b. A larger standard deviation means a riskier investment. c. Standard deviation measures the volatility of an investment from the expected losses. 2.) Which is false concerning covariance? a. A negative covariance means that the two variables tend to move in opposite directions, perpendicular to each other. b. A covariance of zero means there is no linear relationship between the two variables. c. A positive covariance means that the variables tend to move together .A portfolio consisting of two assets has a correlation coefficient of 0.7. Another two-asset portfolio has a correlation coefficient of -0.6. In the absence of any other information, which portfolio should you invest in, if your main goal is to eliminate risk? Justify your reasoning. How does your answer change if your main goal is to take a certain market view and hence make a side bet? Explain more generally the advantages and disadvantages of using correlation in the decision-making process within a portfolio management context. Make sure to mention what correlation is, and what is not, as a metric tool for investment decisions.
- Which of the following statements about the correlation coefficient is false? Group of answer choices The values range between -1 to +1. A value of +1 implies that the returns for the two stocks move together in a completely linear manner. A value of -1 implies that the returns move in a completely opposite direction. A value of zero means that the returns are independent. None of these (that is, all of these statements are true)Identify the FALSE statement a. Where two securities are perfectly positively correlated, there is no reduction in unsystematic risk through diversification. b. Portfolio theory, as initially developed by Markowitz (1952), assumes that the returns from investments are normally distributed. c. Beta is calculated by finding the covariance between the return on the asset and the return on the market and dividing it by the variance of the return on the market. d. A well-diversified portfolio should have a beta significantly less than one.4. Which of the following statements is FALSE? A) A stock's return is perfectly positively correlated with itself. B) When the covariance equals 0, the stocks have no tendency to move either together or in opposition of one another. C) The closer the correlation is to -1, the more the returns tend to move in opposite directions. D) The variance of a portfolio depends only on the variance of the individual stocks.
- Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.State whether the following statement is True or False and explain why. “The return on a risk-free asset and the return on any common stock are perfectly negatively correlated.”Portfolio provides average risk but much lower return. The key is the negative correlations among individual stocks. True False Answer should be correct(Be fast)